Stocks face more turbulence that could send indexes spiraling through key levels next week as doubts about the pace of the global recovery persist and fears over Europe's sovereign debt woes rattle sentiment.

Investors worry that the debt problems will hinder efforts to sustain the nascent economic recovery and undermine confidence in the stability of governments that stand behind the euro.

With the Dow briefly dipping back below 10,000 and the benchmark S&P 500 <.SPX> down 7.3 percent from its 15-month closing peak of January 19, money managers and analysts say there is a growing sense that the U.S. stock market's rally from the lows of March 2009 has all but run its course.

I am in a camp that believes we're in a correction. The mood has turned short-term negative, said Eric Kuby, chief investment officer at NorthStar Investment Management Corp in Chicago. The general trend for more than nine months has been for the market to rally, but now it seems as if the enthusiasm has abated, and it's hard for the market to move forward.

EUPHORIA VS REALITY

Investors had bet the start of 2010 would show that the recovery was gaining momentum, but their optimism has been met with more signs of turbulence in the labor market and by worry over possible contagion from fiscal upheaval in Greece, Portugal and Spain.

As a result, the euro has fallen sharply against the U.S. dollar due to risk aversion, hurting stocks and the prices of global commodities. On Friday, the benchmark S&P 500 capped its fourth straight weekly decline, falling 0.7 percent. The Dow dropped 0.6 percent and the Nasdaq shed 0.3 percent.

The markets are not taking any prisoners. They're not looking at things as isolated incidents. They're looking at this as the spreading of a contagion, said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.

It's not clear at this point whether this will stop at Europe or whether the correction has run its course.

Uncertainty surrounding the Obama administration's legislative reform agenda for the banking and healthcare sectors added to the bearishness, along with uneasiness about the United States' own ballooning fiscal deficit.

There are also signs that China is looking to curb lending to prevent its economy from overheating, which risks derailing the global recovery if stimulus was withdrawn too soon.

The U.S. government's January non-farm payrolls report sowed even more caution on Friday as it showed the economy unexpectedly lost 20,000 jobs in January.

BRING ON THE BARGAIN HUNTERS

All told, the correction was long anticipated, but there is uncertainty about how far it will go. The technical damage from the latest correction briefly drove the Dow below 10,000 on Thursday and Friday, but the index has yet to close under that level.

Meanwhile, the S&P 500 has broken through key support at 1,085 and slid as low as 1,044.50 on Friday before rebounding slightly toward the close.

Market technicians have warned that further downside could take the S&P 500 as low as 1,036 -- a level that will signify the textbook 10 percent correction from the January 19 closing peak.

But if the previous pullbacks -- in July and in October 2009 -- are any indication, investors could again look for opportunities in the days ahead to scour the market for stocks whose prices have been pushed down to attractive levels. Late on Friday, there was some evidence of investors snapping up beaten-down shares as technology and materials sectors led a last-minute bounce.

When everything is too bleak, that's when you should look for the other side, said Ron Florance, director of asset allocation and strategy for Wells Fargo Private Bank in Charlotte, North Carolina. Corrections are like diets. They're never really pleasant, you kind of dread them, but at the end of the year, you look better and you feel healthy.

The highlight on the economic calendar is set to be the Commerce Department's January retail sales report on Thursday, along with December business inventories and weekly jobless claims. That trio of reports will follow the release on Wednesday of the U.S. international trade deficit for December. On The Reuters/University of Michigan survey of consumer sentiment's preliminary February reading is due on Friday. For details, see

Particular attention will be paid to Federal Reserve Chairman Ben Bernanke, who is scheduled to testify before the House Financial Services Committee on Wednesday. The hearing will explore the unwinding of the Fed's emergency programs.

The steady stream of fourth-quarter earnings will continue. Next week's focus will shift to more consumer-oriented companies, with Walt Disney Co , Coca-Cola Co , CVS Caremark Corp , PepsiCo
, Marriott International , Hasbro , and Electronic Arts among those due to report.

The consumer's financial health is key as investors look for clarity on the recovery's prospects.

(Reporting by Ellis Mnyandu; Additional reporting by Leah Schnurr; Editing by Jan Paschal)